Managing Risk in Ohio: Clean Energy’s Role in a Reliable, Diverse Power Supply

“Don’t put all your eggs in one basket” is a mantra often used by investors who diversify their portfolios to protect against volatility in financial markets. It’s also appropriate for the electricity sector in Ohio, a state that has historically been overdependent on coal and is fast becoming over reliant on both coal and natural gas, leaving consumers vulnerable to volatility in energy markets and many other risks. Renewable energy and energy efficiency can help diversify Ohio’s power mix, and bring safe, clean, reliable, and affordable power to consumers, according to a new UCS report. Why then is the central policy that is successfully supporting these clean energy industries in Ohio under attack?

Figure 1: Coal Use is Declining in Ohio. While energy efficiency and renewable energy are increasing in Ohio, coal, with increasing amounts of natural gas, supply the majority of Ohio’s electricity. Source: EIA.

The role of coal and natural gas in Ohio

Coal provided two-thirds of Ohio’s electricity generation in 2012, significantly more than the United States as a whole or even the Midwest region. But, like many other states, Ohio’s coal power industry is in transition. Current market forces haveeroded the economic competitiveness of coal, with more than 7,700 megawatts of coal capacity already shuttered in Ohio or expected to be by 2015. However, even with this recent decline, coal remains a dominant source of Ohio’s electric generation (Figure 1).

As Ohio’s old and dirty coal plants retire, much of the void is being filled with generation from natural gas. Thanks in large part to lower prices, natural gas generating capacity has more than doubled in Ohio over the last decade. Looking ahead, new natural gas plants will likely continue to replace retiring coal capacity in Ohio as they make up a majority of new project proposals (Figure 2).

Figure 2: Natural gas is the Primary Replacement for Coal in Ohio. Retiring coal plants in Ohio are primarily being replaced with natural gas plants. Renewable energy and other resources make up a smaller percentage of new projects. Source SNL. Note: Proposed new projects include those that are under construction, in advanced development, or in early development.

One of the biggest risks to Ohio consumers is an increase in the price of natural gas and coal, which could saddle consumers with higher electricity costs. Natural gas prices have a long history of volatile swings and have already about doubled since reaching a historic low in March 2012. Many energy experts agree that the prices of natural gas and coal are expected to rise significantly over the next several years, costs that will be passed on to consumers (Figure 3).

Figure 3: Coal and Natural Gas Prices on the Rise. Coal and natural gas prices are projected to increase through 2027 in PJM, the regional power market that Ohio participates in. Sources: PJM and EIA.

Dependence on coal and natural gas also creates serious environmental and public health hazards. Coal plants are particularly harmful: they generate significant amounts of dangerous air pollution and produce toxic coal ash that can contaminate local waterways. Coal generation is also the electricity sector’s largest source of heat-trapping carbon dioxide emissions. While natural gas plants emit fewer air and water pollutants than coal plants, the extraction, transport and burning of natural gas still contributes significant levels of heat-trapping emissions to the atmosphere, and is not a sufficient solution to the climate crisis.

Renewables and efficiency offer a lower-risk path forward

Diversifying Ohio’s electricity portfolio by incorporating greater levels of renewable energy and energy efficiency can mitigate the risks inherent in the state’s overdependence on coal and natural gas. For example, they offer a valuable hedge against the volatility and uncertainty of coal and natural gas prices, face fewer operating risks, and do not emit global warming emissions, or contribute to air and water pollution.

Investments in energy efficiency, wind, solar, and other renewable energy sources are well underway thanks largely to the state’s renewable energy standard (RES) and energy efficiency resource standard (EERS), which passed with bi-partisan support in 2008. By 2025, the law requires utilities to ramp up their use of renewable energy to meet 12.5 percent of demand (up from just 1 percent in 2012), and implement energy efficiency programs that will reduce energy demand by 22 percent.

These clean energy sources are already delivering important economic, public health, fuel diversity, and environmental benefits to communities throughout Ohio. There is currently 426 MW of wind power capacity online in the state—enough to power more than 100,000 homes. Utility energy efficiency programs have already saved more than 3 billion kilowatt-hours (kWh) of electricity at a cost of only 1 cent per kWh (compared to 6 cents per kWh or more to build new generating resources).

Ohio’s RES and EERS are also proving to be affordable for consumers. A March 2013 Ohio State University study found that the RES and EERS combined have led to a 1.4 percent reduction in ratepayer costs between 2008 and 2012, for a total savings of $230 million.

Renewables and efficiency under attack

Despite these gains, Ohio could do more to diversify its electricity mix with renewables and efficiency. For example, setting Ohio’s renewable energy standard to require 20 percent or more renewable energy by 2025 (as 17 other states have done) would help reduce the state’s exposure to the risks of overdependence on coal and natural gas and create important economic benefits.

Instead, when the Ohio General Assembly reconvenes this month, state Senator Bill Seitz—chair of the Public Utilities Committee—plans to release new legislation that will rollback Ohio’s existing clean energy laws. If successful, this will only serve to increase the economic, public health, and environmental risks of Ohio’s electricity portfolio.

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Jeff Deyette is the director of state policy and analysis and has expertise on the economic and environmental implications of renewable energy and energy efficiency policies at the state and federal level.